For the past few years, cloud computing has been hailed as the ‘silver bullet’ that will transform the way organizations manage their local and global IT applications.
By placing data and software in ‘the cloud’, there is the promise of consistent, up-to-date information delivered to every user, combined with potentially huge cost savings through economies of scale.
Cloud has a particular appeal to Finance Directors, with vendors selling the vision of lower cost “commodity pricing”, coupled with “pay per play” which allows expenditure to move from capital investment to operating budgets. A heady cocktail indeed!
While the reality is somewhat different, cloud computing should not be dismissed as just another IT ‘fad’. There are some genuine benefits, although they may not be the most obvious or especially low-cost.
What is the cloud?
Cloud computing is the ability to deliver shared resources, software and information on-demand, via the internet, to computers and other communication devices from a single mega-datacenter.
The pitfalls
The cloud model has now been developed for a wide range of uses, being touted by IT providers as the ‘way forward’ for all IT infrastructures. It’s an obvious choice where the purchase decision is for 20-40 thousand ‘seats’, all requiring virtually identical systems for non-sensitive data – let’s call this a ‘public cloud’. Where the decision becomes more complex, is with smaller volumes or where applications deviate from the mainstream – essentially a ‘private cloud’.
Broadly, there are three types of IT infrastructure and applications relevant to every organization:
1. IT Generic – e-mail, instant messaging, MS Office and other organization-wide applications for general activities.
2. Business Generic – business process applications such as internal finance or operational systems.
3. Business Specific – specialist applications unique to the organization or industry sector, such as manufacturing software or core customer data
Without question, cloud computing has significant benefits for IT Generic applications. This is the ‘public cloud’ model, with high volume, pay-per-use offering potential cost and efficiency savings. Many organizations are already using elements of cloud functionality for this level of applications and starting to see the benefits.
For Business Generic IT, cloud computing is often used, but not necessarily knowingly. These functions, such as HR, payroll or finance, are often outsourced with the attitude of “we don’t care how it works as long as it’s reliable”. The third parties will then use cloud-based systems to process high volumes of data for multiple organizations, thus benefiting from the economies of scale of the ‘public cloud’. The “don’t care” attitude may be fine from a financial perspective, but outsourced operations need to demonstrate rigorous security for sensitive data, particularly HR applications.
Security becomes cloud computing’s major stumbling-block for Business Specific applications such as core banking, insurance systems or point-of-sale for retail. Unless there are significant developments in IT security, it is unlikely that traditional or already established companies will turn to cloud computing for Business Specific applications for many years yet, if at all, particularly if the motivation is purely financial.
Business Specific applications require high levels of security and bespoke structures that allow differentiation from competitors. The ‘public cloud’ is not suitable because it works on scale and uniformity. As soon as an organization considers bespoke alterations, the gain in flexibility means a loss of economy of scale and a return to traditional pricing models.
Where are the benefits?
Overall, the clouds are not all grey. Already we are seeing vendors changing their approach to sales; focusing on the broader benefits of consistency, better customer service and some financial savings, rather than the cost-driven Nirvana that FDs and CIOs were being offered a year or so ago. New entrants, such as microbanks and sector mould-breakers, are already maximizing the benefits of ‘private clouds’ because they are able use the model from the outset. Whether this model will support these businesses as they grow remains to be seen, but it certainly lowers the barriers to entry.
One area where Cloud will make real inroads is in third party collaboration. It is often far easier for two organizations to agree to use a common Cloud provider to collaborate on a project, than for either to allow the other to access its own internal systems. As more and more businesses undertake shared ventures this could prove a significant growth area.
The winds of change
If the cloud is really going to meet Business Specific needs, there must be two key areas of change. The first is security and the second is flexibility. For security, the adoption of a single set of standards between clients and vendors is essential. By agreeing this, the Googles and Microsofts may have the opportunity to adapt their ‘public cloud’ offerings to private requirements. These standards could be sector, rather than organization, specific; we are already starting to see this working for government departments in the UK and US with, for example, the UK intelligence community’s G-Cloud. Whether this whole approach has been compromised by the recent Wikileaks breach is up for debate.
In terms of flexibility, sector clouds could be robust enough providing they are viewed from a more traditional model perspective. While the direct financial savings may not be as great, an effective ‘private cloud’ will allow bespoke applications, better customer service and differentiation of product and services from competitors.
In essence, Cloud computing isn’t a ‘silver bullet’ for all IT woes, but it will offer real opportunities to drive down cost and improve flexibility for large areas of IT. Focusing investment in the areas that work well in the Cloud (IT generic, third party collaboration) will bring real benefits. Trying to make the Cloud work in other areas is only likely to deliver a disappointing return on investment.
He is also the inventor of the patented meshDETECT, Secure Prison Cell Phone Solutions.
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